Monday, April 4, 2011

How much would a mansion tax make house prices fall?

Letters: Do Lib Dems want the high-end housing market to fall?

Sir, Some cautionary economics for the Liberal Democrats. If you impose a 1 per cent tax on houses worth more than £2m, either through council tax or a wealth tax, the discounted value of the liability is around £285,000 (assuming a 7 per cent discount rate). Do the Lib Dems really want the “high-end” housing market, which includes much of the London market, to fall by 14 per cent? The unintended consequences could be much more profound than they might imagine.

Posted by drewster @ 10:53 PM (2160 views)
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5 thoughts on “How much would a mansion tax make house prices fall?

  • mark wadsworth says:

    Yup, I saw that and fired off a reply as follows this lunchtime:

    “Andrew McNally claims that a one per cent Mansion Tax would reduce the selling price of a £2 million mansion by £285,000 when it would do no such thing. The original Liberal Democrat manifesto proposal was to only tax the value in excess of £2 million, and even if the Mansion Tax had such an effect, then this merely reverse the past couple of years of house price inflation in London.

    What is worse is that Mr McNally ignores the fact that the Mansion Tax was re-proposed as a quid pro quo for scrapping the 50 per cent income tax rate. So even if the 1 per cent Mansion Tax applied to the full value of a £2 million home, any owner or potential purchaser who earns more than £250,000 would still end up better off after tax.

    Opponents of the Mansion Tax claim it is “unfair” to tax people on unearned capital gains because some cash-poor widows who made a lucky investment fifty years ago would be “forced” to sell their homes to today’s highest earners and to downsize; but is it not inherently fair that those high earners, who pay well over a hundred thousand pounds a year to HM Treasury (to cover the cost of such items as the old age pensions of those who might be downsizing) also end up living in the nicest houses?”

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  • Nice one Mark. You’ve made a very positive case for LVT.

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  • mark wadsworth says:

    Ta, rather surprisingly, the FT don’t seem to have printed my letter.

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  • ontheotherhand says:

    Even if it did make prices fall at the top end, this is politically similar to taxing non-doms a bit more each year. They don’t vote and numbers are tiny so pick on them and cheer up the masses. Similarly, the majority of £2m+ sales go to foreigners parking their cash in a safe place that doesn’t tax them (London is the only world city that does not take withholding tax on capital gains to foreign property buyers). If they make money on a house that they mostly don’t live in owing to the public and private enterprise in the UK, then there is an even more stark case for taxing them for that benefit.

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  • mark wadsworth says:

    OTOH, again, the £30,000 non-dom charge will be one of the taxes (jealousy surcharge, actually) that gets rolled into LVT, so if yer non-dom’s house is worth less than £3 million or something, he ends up better off.

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